If you've been considering using invoice factoring to improve your short-term cash flow, you may be wondering what will happen to your customer service reputation as a result. Since the factoring company performs most of the accounts receivable work for you, you might understandably be concerned about your customers and how they will be treated by the factor. Here is a primer on how factoring affects your customer service.
What is Factoring?
In case you're unfamiliar with the factoring process, it works by allowing you to sell the value of your invoices to the factoring company. The company sends you a payment that is worth most of the invoice value and then you're free to use the money however you want to further your business. Your customers simply pay the factoring company and then the factor sends you what's left after deducting its fee for the advance.
How Factoring Helps with Accounts Receivables
One reason so many entrepreneurs appreciate invoice factoring is the fact that the arrangement reduces the amount of accounts receivable work they have to perform. Since the factoring company purchases the customer invoices outright, it also takes responsibility for customer payments, which keeps you from having to do the typical AR work you're used to. However, the factor may only contact the customers once just to make sure that the invoices you've sold are correct.
Should You Be Worried About Your Customers?
You don't have to worry about your customer receiving several calls from the factor. After the initial contact, your customers may not hear from the factoring company at all. The factor also doesn't perform any collection duties, so your customers won't get any harassing phone calls or letters demanding prompt payment. This means that you'll be able to keep your exceptional customer service record intact. It is important to note, though, that if your customers don't pay the invoices in a timely manner, the factoring company may pursue collection action against you in order to clear up your account and pay off the advance.
Most factoring agencies use account managers to help business owners keep a handle on the invoices they have sold and keep up with their cash advances. If you have questions about how your factor will care for your customers, you can clear them up by contacting your account manager.
If you've been concerned about how factoring will affect your customer service, don't worry any longer! You can rest assured knowing that you can keep the same relationship with your customers, even if you decide to take advantage of invoice factoring.